The X5 looks nice, but here's my $.02 as someone who bought a silver M3 40GB and wound up getting something else. (I'm selling the M3 by the way ...)
When I was in the UK, I got my M3 because the 40GB silver was only out there and it's still that way. I really, really liked it for a month or two. Sounds quality was good, firmware updates, FLAC support, near-gapless. My initial impression was much like Austin's with the X5. I was also a previous Karma owner, and that went to DAP heaven.
Over time, the M3 started to grate on me for a few reasons:
1. Battery life was so-so (it died on the plane ride over to Japan; I used FLAC so it ate up more life than mp3s). Yes I know FLAC is more processory intensive, but getting 6 - 8 hrs isn't good. Factor in the screen that now needs to be powered ... I'd love to see real world usage test with FLAC.
2. The controls were all the remote, which is solved with the X5 - if the M3 had a proper screen and a nipple controller, I probably would have liked that aspect much better.
3. The near-gapless - even at 1/10 of a second - started to get on my nerves. It didn't bother me at first, but I actually listen to a great deal of material that needs to be gapless, and where it was less noticeable at first, it grew to be moreso. The flip side of that is iAudio updates firmware; maybe they'll eventually implement it. The negative to most about the Sony and its gapless support is that it must be ATRAC encoded. Fair enough. That's not a problem for me.
Because of this stuff, I wound up searching around and got my Vaio Pocket, which has brought enjoyment back into my trips. The X5 looks great, and the quality seems to be up there with the M3 in terms of overall build, etc.
I would get an X5 over an iPod any day, but not over my Vaio Pocket. If Sony would only support a lossless format (even their own, which is part of the OpenMG spec), the Vaio Pocket would be perfect. I've learned that DAP players on some level would be a compromise. I do a lot of flying, so critical listening wasn't my thing - and shed myself of needing lossless (although I would use it if it was an option). Gapless and sound quality are the top two for me, and the Sony as well as the iAudio sound great, but the gapless along with other things like the album art, etc., put the Sony ahead for me.
To each his own - if I was in the market again I would consider the X5 but probably look at other players like the new NW-HD5 as well.